Key points of investment
Performance:
In 2023, the company's revenue was 9.15 billion yuan, YOY -12.8%, net profit to mother of 270 million yuan, YOY -34.6%, net profit after deducting non-return to mother 150 million yuan, YOY -62.2%.
2024Q1, revenue of 2.07 billion yuan, YOY -4.9%, net profit attributable to mother 22.6 million yuan, YOY -72.1%, net profit without return to mother 18.6 million yuan, YOY -74.3%. According to the company's announcement, the sharp decline in net profit due mainly to changes in the account structure of some hospital customers and the extension of historical repayment periods, which led to a large increase in credit impairment loss accruals compared to the same period last year, affecting current net profit.
Growth analysis: Empowering AI models to expand core business boundaries (intensive business/regional inspection center business): In 2023, this portion of the company's business revenue was 2,633 billion yuan, YOY -1.23%. Mainly in 2023, medical institutions were affected by the medical policy environment, and the progress of new customer development was slower than in the previous period; at the same time, the company voluntarily terminated some of the extended accounts. As of the end of 2023, the number of customers at the company's intensified/district inspection center was 409. We believe that the company's growth space in this sector mainly comes from: ① China's IVD distribution service market concentration continues to increase: currently, the competitive landscape of the industry is scattered, and there are more than 20,000 small and medium-sized IVD agents. In the future, with the advancement of policies such as medical insurance fee control, platform-based enterprises with strong comprehensive service capabilities are expected to gain a larger market share. ② The entire “R&D - production - distribution - service” industry chain has been opened, and the scale of the in-hospital testing market is growing rapidly: the development of population diagnosis technology, the increase in the variety of testing projects, and the expansion of overall testing demand from downstream medical institution customers all provide strong support for the steady growth of the company's future performance. We anticipate that this segment of the business is still expected to maintain stable revenue growth in the context of an aging population and an increase in the patient base.
Industrial sector: In 2023, this portion of the company's business revenue was 561 million yuan, YOY 15.73%. The company actively lays out the upstream IVD manufacturing field, differentiates products in some characteristic IVD technology fields, and its own brand products cover fields such as saccharification, clinical mass spectrometry, molecular diagnosis, POCT, and digital information systems. In 2023, the company continued to enrich its glycated hemoglobin testing product line, and launched new MQ-3000 and MQ-8000 saccharification lines, further consolidating the company's leading position in the domestic glycated hemoglobin testing market. At the same time, the promotion of clinical mass spectrometry-related products will also be stepped up in 2023 to provide customers with one-stop mass spectrometry clinical application solutions such as the next-generation clinical mass spectrometer-ARP-6465MD triple quadrupole mass spectrometer, and Spectrofangda fully automatic preprocessor. The mass spectrometry product line is expected to become the company's new characteristic product growth line in the future, and we are optimistic about the growth potential of the company's own products driven by innovation.
Empowering AI models and expanding business boundaries: In 2023, with the development of AI big model technology, and based on the company's industry experience in the medical service field, big model applications were used as breakthroughs, and products such as “Good Medicine Xiaohui” health assistants, generative medical records, and digital human intelligence services were launched in cooperation with HUAWEI Cloud Computing Technology Co., Ltd. At the same time, the company and HUAWEI CLOUD jointly released the “Urban Smart Healthcare Cloud Solution (White Paper)”, setting an industry benchmark. Furthermore, in pharmacy application scenarios, the company and Guangxi Liuyao Group Co., Ltd. have carried out comprehensive and in-depth cooperation in the fields of smart pharmacies, smart hospitals, and smart medical clouds. In the medical examination application scenario, the company cooperated with Meinian Health to create the first AI robot for health management in China - “Health Xiaomei” Digital Intelligence and Health Manager. We believe that in terms of medical AI models, the company has a strong first-mover advantage and platform advantage. The commercialization of AI models is progressing in an orderly manner, which is expected to bring significant incremental contributions to the company's medium- to long-term development.
Profitability analysis:
Gross margin and net profit margin: In 2023, the company's gross margin was 26.58%, down 1.41pct year on year, and the net sales margin was 4.84%, down 1.40pct year on year. Mainly due to the medical policy environment, the company's revenue declined in 2023, but in order to maintain the level of service management for customers, fixed costs such as related service personnel were not reduced.
Period expense ratio: In 2023, the company's sales expense ratio increased by 0.14 pct year on year, management cost ratio increased by 0.40 pct year on year, and R&D cost rate increased by 0.22 pct year on year. Looking ahead to 2024, the company's expense ratio is expected to remain relatively stable during the period. Furthermore, the resumption of revenue growth and dilution of expenses is expected to bring about a slight recovery in net interest rate.
Operating cash flow: The company's net operating cash flow in 2023 was $730 million, an increase of 270.2% over the previous year.
Net operating cash flow accounted for 196.2% of net income from operating activities, which was a significant improvement over the previous year.
Profit Forecast and Valuation:
The company is a leading domestic IVD product distribution leader. It has accumulated a large number of customers over the years, and with the expansion of the company's intensified/regional inspection center's overall solution outsourcing business, the company's autonomy has been further strengthened in selecting products that meet the requirements, which can not only enable the company to achieve rapid volume after introducing its own products into the channel, but also use its own product cost advantages to provide customers with better cost control and value-added services. Various businesses are expected to promote each other and accelerate growth. Overall, we expect the company's EPS to be 0.65, 0.86, and 1.15 yuan respectively in 2024-2026, corresponding to 28.3 times PE in 2024, maintaining a “buy” rating.
Risk warning
Risk of changes in industry policies, risk of raw material supply, risk of new product promotion falling short of expectations, etc.